BILL ANALYSIS
SENATE HEALTH AND HUMAN SERVICES
COMMITTEE ANALYSIS
Senator Martha M. Escutia, Chair
BILL NO: AB 1098
A
AUTHOR: Romero
B
AMENDED: May 18, 2000
HEARING DATE: June 14, 2000
1
FISCAL: Rules / Appropriations
0
9
CONSULTANT:
8
Miller/ cg
SUBJECT
Health: Fraud
SUMMARY
This bill implements many measures to combat provider fraud
in the Medi-Cal, Family Planning Access Care and Treatment
Waiver Program, and other health programs.
ABSTRACT
1.Requires a laboratory owner or director licensed or
registered with DHS to notify DHS in writing within 30
days of any change in ownership, name, location and 30
days prior to any change in laboratory directors.
Failure to do the later would result in the automatic
revocation of the clinical laboratory's license or
registration.
2.States that the laboratory owners and directors to whom
the current license or registration is issued are jointly
and severally responsible to DHS for the operation,
maintenance, and conduct of the clinical laboratory and
for any violations under the controlling chapter or
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 1098 (Romero) Page
2
regulations adopted thereunder.
3.States that the withdrawal of an application for a
license or registration or a renewal does not deprive DHS
of its authority to institute or continue a proceeding
against the applicant for denial of the license,
registration, or renewal or enter an order denying such
unless DHS consents in writing to the withdrawal.
4.States that the suspension, expiration, or forfeiture of
a license or registration or its surrender without the
written consent of DHS, does not deprive DHS of its
authority to institute or continue an action against the
license or registration or laboratory owner or director.
5.Requires the DHS be notified within 10 days whenever a
clinical laboratory ceases operations or suspends
clinical laboratory practice for any reason. In such
cases, requires the clinical laboratory preserve its
records for a minimum of seven years and maintain an
ability to provide the tests or examination results.
Creates a civil penalty of $1,000 for each record not
retained and the recovery of any of DHS' costs.
6.Provides for DHS of any person injured as a result of the
laboratory's abandonment or failure to retain records, to
bring an action in a court for the amount of any damages
suffered.
7.Makes it unlawful for any person to solicit or provide
any form of payment or gratuity for human blood or any
other human specimen provided for the purpose of clinical
laboratory testing or clinical laboratory practice,
unless under specified circumstances. Makes the first
conviction punishable by imprisonment in the county jail
for up to one year, or by imprisonment in the state
prison, or a fine up to $10,000, or by both; a second or
subsequent conviction punishable by imprisonment in the
state prison.
8.Makes it unlawful for any person to perform venipuncture,
skin puncture, or arterial puncture unless they are
authorized under law or regulation. Makes the first
conviction punishable by imprisonment in the county jail
for up to one year, or by imprisonment in the state
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 1098 (Romero) Page
3
prison, or a fine up to $10,000, or by both; a second or
subsequent conviction punishable by imprisonment in the
state prison.
9.Provides for DHS to have seven years from the date of
discovery by the department of violation of the chapter
or regulations adopted thereunder to file an action in
court.
10.Allows the department to deny, suspend, or revoke any
license or registration for conduct that may cause harm
to a patient by affecting the integrity of a biological
specimen or a lab or exam result or for performance by
unlicensed laboratory personnel of any unauthorized
activity. Makes violation of the former that results in
bodily harm to a human being or involves the taking of
blood from a minor child or dependent adult punishable by
imprisonment in the county jail for up to one year, or in
state prison for not more than ten years, or by a fine up
to $50,000, or by both imprisonment and fine.
11.Authorizes a billing agent to submit claims under the
Medi-Cal program and requires DHS to establish standards
for the registration of each billing agent. Gives DHS
the authority to complete a background check on
applicants for registration.
12.Requires billing agent applicants to provide DHS a
surety bond of at least $50,000. Requires the billing
agent's compensation be related to the cost of processing
the billing and not dependent upon the collection of
payment.
13.Expands the definition of provider to include owners,
managing employees, agents of any partnership, group
association, corporation, institution, or entity that
provides services, goods, supplies, or merchandise,
directly or indirectly, to a Medi-Cal beneficiary.
14.Requires applicants, providers, and persons with an
ownership or control interest to submit their social
security numbers to DHS to the full extent allowed under
federal law.
15.Requires as a condition of a pharmacy's participation in
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 1098 (Romero) Page
4
the Medi-Cal program, that the pharmacy shall have in
stock and regularly dispense prescription drugs.
16.Prohibits the department from enrolling any applicant
that has been related to neglect or abuse of a patient in
connection with the delivery of health care or in
connection with the interference with or obstruction of
any investigation into health care related fraud or
abuse, that has been found liable for fraud or abuse in
any civil proceeding, or has entered into a settlement in
a civil or criminal proceeding alleging fraud or abuse in
the previous 10 years.
17.Makes a hiring provider subject to suspension if claims
for payment are submitted under their provider numbers by
someone who has been previously suspended.
18.Requires DHS to deactivate immediately provider numbers
of providers whose mail has been returned as not
deliverable or when the provider has not submitted a
claim for one year.
19.Prohibits someone who has applied to be a provider and
was denied, to reapply for a period of three years.
20.Gives the director of DHS authority to readopt, repeal,
or amend additional regulatory measures to prevent or
curtail fraud and abuse and deems them emergency
regulations.
21.Increases the penalty for specified offenses from
imprisonment for one year or a fine up to $5,000 to
imprisonment up to 10 years or a fine up to three times
the amount of the fraud or improper reimbursement, or by
both. If the activity results in serious bodily injury,
bodily injury to a minor, or is a threat to public
health, the length of imprisonment is not more than 20
years. If the activity results in death, the
imprisonment is increased to any term of years or for
life, or both. Bases the length of imprisonment on the
sentencing guidelines used by the federal government for
false or fraudulent claims.
22.Specifies a broad range of property of a person who has
engaged in any of the activities subject to fine or
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 1098 (Romero) Page
5
imprisonment to be subject to forfeiture to the state.
The bill specifies the process by which the forfeiture
would take place and the disposition of the property.
23.Broadens the ability of the department to collect or
withhold payment from a provider on the basis of
information or evidence received, including evidence that
would be inadmissible under the Evidence Code.
24.Gives authority to DHS to withhold the reimbursement of
funds due a provider as assets pending the outcome of an
investigation of fraud or abuse. The withholding of the
payments would not be subject to any other provision of
law and would not be subject to appeal or hearing.
25.Codifies many federal statutes and regulations in state
law to clarify that California has the authority given to
states under federal law and regulation.
26.Conforms many of the above changes in the Medi-Cal
program to the Family Planning Access Care and Treatment
Waiver Program.
FISCAL IMPACT
The bill would result in unknown General Fund savings to
the extent the bill results in additional prosecutions of
fraud in the Medi-Cal and other health programs.
BACKGROUND AND DISCUSSION
In 1998 the FBI launched an investigation into fraudulent
Medi-Cal claims which produced 63 convictions. Over the
past several months the combined efforts of the FBI,
Attorney General and Department of Health Services have
produced an additional 150 arrests. The majority of these
early fraudulent claims involved medical equipment supply
companies. The state has imposed a moratorium on
authorizing new medical supply billings, but has recently
found indications that similar phony billings to the $18.5
billion Medi-Cal program have moved into other services,
particularly pharmacy and laboratory services. A recent
departmental check of laboratory service billings found 13
of 15 surveyed physicians had not made any of the hundreds
of billed referrals. The Medi-Cal Fraud Unit has reviewed
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 1098 (Romero) Page
6
13,000 of the approximately 120,000 Medi-Cal providers and
has suspended or is withholding payments to at least 500
providers. The Medi-Cal Fraud Hotline for reporting
suspicious activities has received 1,000 calls to date.
The administration has proposed tripling the number of
auditors and investigators assigned to the Department of
Health Services to 436 at a cost of $34.7 million in
2000-01 budget. The Attorney General is also proposed to
receive an additional $4 million for increased
investigation and prosecution. A second major part of the
effort to reduce Medi-Cal fraud is contained in this bill
which imposes numerous administrative restrictions, extends
legal liability, creates new offenses, expands departmental
authority to revoke licensure, denies participation of
convicted providers, increases penalties for fraudulent
activity and broadens the authority of the state to
prosecute fraud.
The proposed statutory and regulatory actions in the fraud
prevention program are unusually expansive and affect a
particularly varied group of providers. Numerous
stake-holders, while supportive of the intent of AB 1098,
have communicated concerns with certain provisions of this
bill. The California Retailers Association believes
several changes in pharmaceutical reporting and billing
present an undue burden for new companies and recommends
that California enact enrollment procedures similar to the
federal Medicare program as an alternative. The California
Primary Care Association notes that community clinics,
which typically perform minimal laboratory services like
waived testing and provider-performed microscopy services
for clinic patients are subject to C.L.I.A. and all of the
provisions of this measure without any history of abuse.
The California Society of Pathologists, the Radiological
Society and Medical Product Suppliers support the bills
purpose but note several particular provisions such as
prior notice for a change in lab directors; maintenance of
records for all purchases, bills, and test reports for
seven years; and revocation of licensure for mislabeling
lab specimens are extremely burdensome to providers with
little corresponding benefit. The California Medical
Billing Association shares many of these same concerns.
Planned Parenthood is concerned that the extensive new
regulation may lend itself to discriminatory and arbitrary
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 1098 (Romero) Page
7
enforcement. Los Angeles County has recommended formal
linkage of state fraud control efforts with those already
in existence in local governments.
The American College of Emergency Physicians opposes AB
1048 because the measure prohibits billing arrangements in
which the billing contractor is paid on a percentage basis.
The emergency room doctors note that such as arrangement
provides a proper incentive to pursue collection and that
alternative arrangements do not. The California Medical
Association, also in opposition, objects to several
provisions but is principally concerned that payment may be
withheld based on unsupported hearsay or gossip without any
supporting evidence. California Medical Association
comments that such practices threaten the viability of
small providers and will have a chilling effect on all
Medi-Cal providers.
Almost all of the stakeholders are in communication with
the Administration on these issues. However, this issue is
before the Legislature late in the session and will, in all
likelihood, only have one policy hearing.
COMMENTS
The scope and effect of this measure is unusually broad,
and the bill would benefit from additional review and
negotiation between the sponsor and the provider community.
Senate Health and Human Services could advance the bill to
meet necessary deadlines and to allow continued discussion,
but also recommend that the appropriate Assembly Committee
review the progress of negotiation when the measure is
before that House on concurrence.
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 1098 (Romero) Page
8
PRIOR ACTIONS
(Prior votes are not applicable to this version of the
bill)
Assembly Floor: 74-0Pass
Assembly Appropriations: 21-0Do Pass to Consent
Assembly Health: 14-0Do Pass to Consent
POSITIONS
Support: Office of the Governor (sponsor)
California School Employees Association
Department of Health Services
Los Angeles County
Oppose: American College of Emergency Physicians
California Medical Association
Organizations Expressing Concern:
California Association of Medical Products
Suppliers
California Clinical Laboratory Association
California Medical Billing Association
California Primary Care Association
California Radiological Society
California Retailers Association
California Society of Pathologists
Los Angeles County
Planned Parenthood
-- END --